Bernanke: Fed Must Avoid Greenspan Errors

Federal
Reserve Chairman Ben S. Bernanke may encourage lawmakers today to
stimulate the economy while aiming to avoid his predecessor's "regret''
of being tied to specific measures.

Legislators will question the
Fed chief on steps to avoid the first recession since 2001 when he
testifies to the House Budget Committee in Washington. Bernanke told
members of Congress this week that some kind of fiscal stimulus is
needed, according to Democratic lawmakers.

Former Chairman Alan
Greenspan "misjudged'' the environment in which he endorsed tax cuts in
2001, and had "intense'' regret the eventual legislation excluded his
specific guidance, he wrote in his 2007 book. Bernanke will try to
avoid backing any particular tax or spending policies because doing so
could earn criticism from legislators who oppose them, putting the
Fed's reputation for independence at risk, analysts said.

Now
if we can get the Fed to avoid the Greenspan policy of inflating our
way out of every situation to the detriment of those who suffer from
inflation, we will be making some progress.

Note that the major coverage of these Fed Chair comments misses the subtext of what Bernanke was implying (though Bloomberg came the closest): "Greenspan
f&^%ed up! He compromised the Fed's independence for partisan
reasons, and damaged the Fed's reputation. I won't make that mistake."

In this coming Sunday's NYT Magazine is a long piece by Roger Lowenstein titled The Education of Ben Bernanke, and I suspect it will be required reading. (I already picked out a cigar and some scotch for that very purpose).

I already spied this wonderful quote from former Fed Chair Paul Volcker: :

“I
think Bernanke is in a very difficult situation,” Paul Volcker told me.
Volcker was the Fed chief who preceded Greenspan and who conquered,
painfully, the great inflation of the 1970s and early ’80s (he was
chairman from 1979 to 1987). “Too many bubbles have been going on for
too long,” Volcker added. “The Fed is not really in control of the
situation."

Note that when it comes to enjoying low
inflation rates, Volcker is the man who was most responsible. He should
get credit. Truth be told, both the 80's Ronald Reagan boom and the
90's Bill Clinton boom were benefactors of Volcker's Fed. He broke
rampant inflation, and the next 20 years of falling interest rates were
the direct result of his policies.

When you compare the situation Greenspan inherited with the one Bernanke got stuck with...